RBNZ slashes interest rate by 50 bps to 4.75%, as widely expected

The Reserve Bank of New Zealand (RBNZ) announced on Wednesday that it lowered the Official Cash Rate (OCR) by 50 basis points (bps) from 5.25% to 4.75%, following the conclusion of the October policy meeting.

The decision aligned with the market expectations.

The RBNZ delivered a surprise 25 bps rate cut in August.

Summary of the RBNZ Monetary Policy Statement (MPS)

New Zealand now in a position of excess capacity.

Low import prices have assisted disinflation.

Committee assesses annual consumer price inflation within its 1-3% target.

Appropriate to cut OCR by 50 bps to acheive and maintain low and stable inflation.

Business investment and consumer spending have been weak, and employment conditions continue to soften.

Geopolitical tensions remain a significant headwind for world economic activity.

New Zealand economy is now in a position of excess capacity, encouraging price- and wage-setting to adjust to a low-inflation economy.

Minutes of the RBNZ interest rate meeting

The Committee confirmed that future changes to the OCR would depend on its evolving assessment of the economy.

Committee agreed that excess capacity has dampened inflation expectations, and price and wage changes are now more consistent with a low-inflation environment.

Members agreed that an OCR of 4.75 percent is still restrictive and leaves monetary policy well-placed to deal with any near-term surprises.

New Zealand’s annual consumer price inflation is assessed to currently be within the committee’s 1 to 3 percent target band and is expected to converge to the target midpoint.

The Committee discussed the respective benefits of a 25-basis point versus a 50-basis point cut in the OCR.

Committee agreed that domestic activity is weak.

They agreed that a 50-basis point cut at this time is most consistent with the committee’s mandate of maintaining low and stable inflation.

The Committee agreed that the economic environment provided scope to further ease the level of monetary policy restrictiveness.

High-frequency indicators point to continued subdued growth in the near term.

Labour market conditions are expected to ease further.

The Committee agreed that monthly price indices signal a continued decline in consumer price inflation in New Zealand.

Financial conditions remain restrictive, and credit demand remains subdued.

NZD/USD reaction to the RBNZ interest rate decision

The New Zealand Dollar meets fresh supply in an immediate response to the RBNZ outsized rate cut. The NZD/USD pair currently trades around 0.6100, down 0.55 on the day. 

New Zealand Dollar PRICE Today

The table below shows the percentage change of New Zealand Dollar (NZD) against listed major currencies today. New Zealand Dollar was the weakest against the US Dollar.

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the New Zealand Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent NZD (base)/USD (quote).

This section below was published on Tuesday at 20:15 GMT to preview the Reserve Bank of New Zealand (RBNZ) interest rate decision.

• The Reserve Bank of New Zealand is expected to cut interest rates by 50 bps to 4.75% on Wednesday.
• New Zealand’s deepening economic downturn and inflation optimism flag outsized RBNZ rate cut bets.
• The RBNZ policy announcements are set to inject intense volatility into the New Zealand Dollar.

The Reserve Bank of New Zealand (RBNZ) is set to follow the US Federal Reserve’s (Fed) footsteps when it announces its interest rate decision on Wednesday at 01:00 GMT.

New Zealand’s central bank will not publish the quarterly economic projections alongside its policy statement. There will be no press conference from Governor Adrian Orr to follow.

What to expect from the RBNZ interest rate decision?       

The RBNZ is widely expected to lower the Official Cash Rate (OCR) by 50 basis points (bps) from 5.25% to 4.75% following its October monetary policy meeting. The central bank delivered a surprise 25 bps rate cut back in August.

Since then there has been no piece of new macro news, except for New Zealand’s June quarter Gross Domestic Product (GDP) report. Data released by Statistics New Zealand on September 19 showed that GDP declined 0.2% in Q2 from the previous quarter’s revised 0.1% growth. Economists expected a 0.4% contraction in the reported period, while the RBNZ projected a 0.5% drop.

Despite a smaller-than-expected GDP contraction in Q2, the declining trend in inflation and slowing economic activity help build a case around a potential 50 bps cut by the RBNZ this week. However, New Zealand’s sticky non-tradable inflation and a strong resurgence in business confidence could lead the RBNZ to opt for a smaller rate reduction in November.

“The RBNZ’s latest projections have headline CPI at 2.3% and non-tradeable CPI at 5.1% in the third quarter,” FX Strategists at ING noted. 

“We see a non-negligible risk of inflation having dropped below the 2% target range mid-point, but non-tradable CPI should continue to be stickier. Accordingly, this 50bp cut may be a one-off move, with the RBNZ defaulting back to 25bp gradual reductions into a terminal rate close to 3%, they added. 

How will the RBNZ interest decision impact the New Zealand Dollar?

The New Zealand Dollar (NZD) is hanging close to its lowest level in a month against the US Dollar (USD), near 0.6100, as markets fully price in a 50 bps RBNZ rate cut on Wednesday. Meanwhile, the USD stands tall across the board as the strong September Nonfarm Payrolls (NFP) data prompted markets to rule out an outsized Fed rate cut in November.

Heading into the RBNZ policy announcements, the NZD/USD pair appears to be at a two-way risk, as its fate hinges on the central bank’s communication on the size and the pace of the future rate cuts.

If the central bank lowers OCR by the expected 50 bps but surprises with a cautious tone in its policy statement, pushing back against expectations of more outsized rate cuts, the NZD is likely to find fresh demand. In such a case, NZD/USD could stage a strong comeback toward the 0.6300 level. A surprise 25 bps rate cut by the RBNZ could also revive NZD buyers.

On the other hand, NZD/USD could see a renewed downtrend toward 0.6000 should the RBNZ acknowledge the progress in disinflation while voicing concerns over the economic pain, leaving the door open for more large rate cuts.

Dhwani Mehta, FXStreet’s Senior Analyst, offers a brief technical outlook for trading the New Zealand Dollar on the RBNZ policy announcements: “The NZD/USD pair is challenging the critical 200-day Simple Moving Average (SMA) at 0.6099, as the 14-day Relative Strength Index (RSI) remains deep in the bearish territory.”

“If buyers manage to defend the key 200-day SMA, a recovery could initiate toward the 21-day SMA at 0.6226. Ahead of that, the 50-day SMA at 0.6157 could come into play. Alternatively, a sustained break below the 200-day SMA could fuel a fresh downtrend toward the 0.6000 level, below which the August 16 low at 0.5978 will be tested,” Dhwani adds.  

New Zealand Dollar FAQs

What key factors drive the New Zealand Dollar?

The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.

How do decisions of the RBNZ impact the New Zealand Dollar?

The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.

How does economic data influence the value of the New Zealand Dollar?

Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.

How does broader risk sentiment impact the New Zealand Dollar?

The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.

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